Answer Happy

The rand is on a run – here’s where it could be heading towardsthe end of 2021Global uncertainty has increased over the past two months,unsettled by Covid-19 mutations and new lockdown restrictions,which is likely to impact the rand and other emerging marketcurrencies, says Nedbank.The frequent restrictions on economic activity in many parts of theworld continue to aggravate supply shortages and transportbottlenecks, keeping prices of raw materials and intermediate goodselevated, the bank said in a research note this week.“While temporary distortions, mainly pandemic-related disruptions,appear to cause global inflation, the US will start to normalisemonetary policy over the next 12 months. This event will affectcapital flows to the emerging market economies, but the impactcould be less severe if commodity prices remain relatively firm andthe global recovery continues.MASTER OF BUSINESS ADMINISTRATION – ACADEMIC AND ASSESSMENTCALENDAR -DISTANCEREGENT BUSINESS SCHOOL (RBS)- JANUARY 2022 68“Given these counterbalancing forces, we have revised our randforecasts to reflect a more resilient picture over the near term.We still expect a mild depreciation during the rest of this year,followed by more significant weakness in 2022.”The bank forecasts that the local unit will likely trade weakertowards the R14.83/dollar mark towards the end of 2021, increasingto the R15/dollar mark by mid-2022. Similar weakening is expectedagainst the pound and euro, however not to the same extent as thegreenback.The below table shows the fully monthly exchange rate forecasts forthe coming monthsby Nedbank’s group economic unit.The South African rand traded around R14.15 against the dollar,hovering at its strongest level since early July, as the greenbackremained subdued, financial services firm Citadel noted. “The riskrally continues to bolster the performance of the local currency,as markets continue to position themselves for a Dovish Fed forlonger than expected,” it said.At 12h30 on Friday (10 September), the rand was trading at thefollowing levels again the major currencies:Dollar/Rand: R14.11 (-0.35%)Pound/Rand: R19.57 (0.40%)Euro/Rand: R16.70 (-0.23%)Economic recoveryIn a separate research note, Nedbank said that it expects localeconomic recovery, even if the country is to see a fourth wave ofCovid-19 infections and further lockdown restrictions at the end of2021.This comes after the economy fared better than expected in thefirst half of the year, expanding by 7.5% year-on-year.“We still expect a weaker performance in the third quarter,reflecting the impact of stricter lockdown and the destructiveriots in Kwazulu-Natal and parts of Gauteng.“The monthly statistics reflect sharp declines in July, but newvehicle sales and the purchasing managers’ indices point to aconvincing return to growth in August, which is likely to gatherpace in September. The recovery should broaden over the finalquarter even if the country were to experience another wave of newcases and tighter restrictions.”Much of the momentum will continue to come from exports andconsumer spending, Nedbank said. It added that the ongoing globalrecovery, coupled with elevatedcommodity prices, will continue to underpin exports. At the sametime, subdued inflation, low-interest rates and moderate-incomegrowth will support consumer spending.The turnaround in fixed investment is encouraging, supportinganecdotal reports pointing to an increased workflow forconstruction companies. However, the pace of recovery in fixedinvestment off these low levels will be slow, continuallyundermined by ample spare capacity, weak confidence, electricityshortages and structural constraints, it said.“Given the government’s stretched finances, spending is likely toremain relatively stagnant. Within the context of the revisions andthe stronger first half, GDP growth of over 5% now seems plausiblefor 2021.”The South African economy advanced by 19.3% year-on-year in thesecond quarter, after a downwardly revised 2.6 % decline in theprevious period, comfortably beating market expectations of 17.5%,Citadel pointed out.“It was the strongest expansion on record, coming off a low basefrom last year, and further assisted by the relaxation of lockdownrestrictions amid the Covid-19 pandemic.”(Source:https://businesstech.co.za/news/banking ... d-of-2021/)3.1 Explain, with the aid of a diagram, the impact of adepreciation of the rand on the South African economy. (15)3.2 Taking the article into consideration, explain the expectedperformance of the South African economy according to some of thekey macroeconomic variables. (15)3.3 Highlight the main benefits of increasing trade for the SouthAfrican economy. (10)